Alexander-Fox
LTD

MORTGAGES

An
Introduction

Mortgages are one of the largest single transactions in most
people’s lives. Buying a property can be a stressful and time
consuming experience, although nowadays the financing of a mortgage
is a case of finding and selecting the most suitable deal, rather
than simply accepting a lender’s offer.

Hundreds of banks, building societies, and smaller niche lenders
compete for your business, all offering a variety of interest rate
deals, associated fees and other enhancements to attract
borrowers.

There remain two main methods of repaying a mortgage loan, and it
is possible to set up the mortgage on a ‘part repayment and part
interest only’ basis. A description of these methods is provided
below.

Repayment (capital and interest) mortgages:

Under a repayment mortgage your monthly repayments consist of both
interest and capital hence, over time, the amount of money you
actually owe will decrease. In the early years your repayments will
be mainly interest and therefore the capital outstanding will
reduce slowly in the early years.

Whilst this method ensures that the mortgage is repaid at the end
of the term providing all payments are made on time and in full, it
is generally more expensive at the start.

Interest only mortgages:

As their name suggests, with an interest only mortgage you only
repay the interest on the mortgage. At the end of the term the
capital is still outstanding. Therefore you will usually need to
take out some kind of investment policy to save up enough money to
repay the mortgage at the end of the term.

Traditionally the preferred product for repaying the capital of an
interest only mortgage was a mortgage endowment policy (which
included a set amount of life cover) – although more recently
customers are using Individual Savings Accounts (ISAs) and pensions
to build up a sufficient sum and taking advantage of the tax breaks
offered by these products.

There are also several terms used to describe the interest
you pay on a mortgage, and the key terms are as
follows:

Standard Variable Rate (SVR)

The SVR is the lenders standard rate, usually 1-3% above the Bank
of England base rate. With a variable rate mortgage you are
normally able to switch lenders at any time without being
penalised. If you start a mortgage with a different type of
interest repayment for an agreed term, once the term finishes you
will go back to the Lenders SVR.

Fixed Rate

A fixed rate mortgage allows you to repay interest at a fixed rate,
irrespective of any base rate fluctuations. In other words your
monthly repayments will remain the same every month for a time
period agreed between you and your lender (usually up to 25 years).
Fixed rate mortgages often have early repayment charges so you need
to be sure this is suitable for you for the foreseeable future.
Furthermore, the lender may also charge a ‘booking/arrangement fee’
to apply for this type of mortgage.

Tracker

A tracker mortgage will track any movement in the Bank of England
Base rate, so you will benefit from any falls in interest rates,
but will also have to pay more each month should the rates
increase.

Discount

The discount mortgage rate is another variation of the standard
variable rate. It provides a discount from the lenders SVR for a
fixed period of time. The interest rate still fluctuates, meaning
your monthly repayments may differ slightly from month to month,
but the discount remains constant.

You should ask your adviser to explain these in more detail, or ask
for an illustration.

As a mortgage is secured against your home, it could be
repossessed if you do not keep up the mortgage
repayments.

As a mortgage is secured
against your home or property, it could be repossessed if you do
not keep up the mortgage repayments

The Financial Conduct Authority does not regulate some
forms of Commercial Mortgages & Loans.

We are a Credit Broker not a Lender

The guidance and/or advice contained within
the website is subject to the UK regulatory regime and is therefore
primarily targeted to customers in the UK.